Australian thermal coal cargoes arriving at China's ports on January 1, 2017, and thereafter will be clear of the Asian country's 2% import tax, currently equivalent to $1.50/mt, and levied on the delivered CFR South China price of shipments, said the Australian government Thursday.
Beijing introduced a 6% tax on all thermal coal imports with little advance warning in October 2014, and went on to lower its rate on Australian-origin thermal coal to 4% in December 2015, and then to 2% effective January 1, 2016.
"Under China-Australia Free Trade Agreement (ChAFTA) commitments, this tariff is scheduled to be fully eliminated (cut to 0%) for Australian-origin thermal coal on January 1, 2017," said a spokeswoman for the Australian government's department of foreign affairs and trade in an emailed response to S&P Global Platts' questions.
"Prior to the China-Australia Free Trade Agreement coming into force, China's general import tariff for [thermal coal] was 6%. Under ChAFTA commitments, this rate has already been reduced twice for Australian-origin thermal coal, to now sit at 2%," said the department of foreign affairs and trade.
Chinese buyers successfully resisted paying the import tax, and pushed its deadweight cost on to the seaborne market where it weighed on prices of Australian thermal coal, ultimately being largely absorbed by Australian shippers as an additional cost.
Market participants will be watching to see how prices in the Chinese seaborne market react to the lifting of the import tax, and whether CFR South China prices rise by an equivalent amount, about $1.50/mt.
In Asia trade Wednesday, Platts assessed the CFR South China price of 5,500 kcal/kg NAR Australian thermal coal for delivery to China in January at $75.30/mt, down 30 cents from Tuesday.
January-loading Capesize cargoes of Australian 5,500 kcal/kg NAR thermal coal were heard bid by Chinese buyers in Wednesday's Asia trade at $66/mt FOB Newcastle to offer prices at $67.50-$68/mt, according to Platts data.
On its Free Trade Agreement website, Australia's department of foreign affairs and trade said China's total imports of bituminous thermal coal and related products was worth $7.8 billion in 2015, down 48.5% from $15.2 billion in 2014.
Australia's share of this market last year was 65.7%, with Australian thermal coal shipments to China worth $5 billion in 2015, down 40.5% from an import value of $8.6 billion in 2014, said the department.
Although China will be lifting its import tax on Australian thermal coal shipments early in the new year, Beijing is maintaining its 6% tax on imports of thermal coal from Colombia, Russia and South Africa.
Indonesian thermal coal shipments to China are exempt from any import tax under a bilateral free trade agreement.